South Korea’s breach of trust law has returned to the spotlight as lawmakers expand directors’ fiduciary duty to shareholders. This move sparked concerns across the business community, raising fears of excessive liability and criminal charges tied to management choices. Consequently, the government has launched a review aimed at rationalizing economic criminal penalties.
The issue remains significant because breach of trust can send business leaders to prison over disputed decisions. Critics argue this harsh approach deters investment and weakens corporate competitiveness. Furthermore, the law applies broadly, covering even good-faith decisions that result in losses. Many observers believe this creates an uncertain environment for executives.
South Korea’s breach of trust law is among the strictest in the world. Offenses under the statute can carry penalties of up to ten years in prison or steep fines. If the case involves very large losses, punishments become even more severe. By comparison, countries like Japan, France, and Germany limit liability to intentional misconduct or misappropriation.
Moreover, the UK and the US have no direct equivalent statute. Instead, they rely on fraud or embezzlement laws, with civil courts deciding management disputes. Business leaders argue this approach better separates civil disputes from criminal law. They point to the “business judgment rule” abroad, which shields directors making decisions in good faith.
The South Korea breach of trust law has produced many high-profile cases involving conglomerates. While prosecutors often pursue charges, conviction rates remain low. Courts frequently dismiss cases due to lack of evidence, but long trials still cause damage. Executives spend years in litigation that ends without a guilty verdict, harming both companies and investor confidence.
Legal experts stress the vagueness of the statute. The phrase “act in violation of duty” remains undefined, leading to overly broad interpretations. Critics also note that anyone can file a complaint, which results in thousands of cases each year. Yet, only about one in ten cases ends with conviction, fueling accusations of prosecutorial overreach.
Reform advocates argue that criminal liability should focus on clear self-dealing or unfair transactions. They recommend adopting the “business judgment rule” as a safeguard for managers acting in good faith. At the same time, they call for stronger civil remedies to protect minority shareholders in disputes involving affiliate companies.
The government now plans comprehensive reforms. Officials intend to introduce measures that align corporate law with global standards while protecting investors. Business groups hope the new framework will reduce risks for management and encourage more dynamic decision-making. However, some experts warn against total abolition, stressing the need for checks on conglomerates.
